The Case For No Stimulus

Don’t just do something — stand there:

The grand Keynesian myth is that you can spend money and thereby increase demand. And it’s a myth because Congress does not have a vault of money to distribute in the economy. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. You’re not creating new demand, you’re just transferring it from one group of people to another. If Washington borrows the money from domestic lenders, then investment spending falls, dollar for dollar. If they borrow the money from foreigners, say from China, then net exports drop dollar for dollar, because the balance of payments must adjust. Therefore, again, there is no net increase in aggregate demand. It just means that one group of people has $800 billion less to spend, and the government has $800 billion more to spend.

And for those who say this a prescription for failed Hooverian laissez-faire policies, a) Hoover didn’t keep his hands off the economy — he undertook damaging measures in response to the Wall Street panic (e.g., raising taxes, and implementing protectionist measures) that turned it into a depression that FDR then prolonged and b) a true laissez-faire approach would be to undo the damage that overregulation in the economy has caused.

And here’s a good idea, too:

What about the idea of a moratorium on IRS audits for middle-class taxpayers (using any of Obama’s campaign-trail definitions, from $250K/yr on down) for at least a year? Obviously the IRS is short on auditors, so why not deploy them where they are most needed?”

I’d start with high government officials, since they seem to be poster children for tax evasion, based on Obama’s picks so far. And particularly since those same government officials are so vocal about the need to be (and “patriotism” of) paying your income tax. Maybe if these people had to actually pay the taxes for which they so vociferously shill, they might be a little more sympathetic to calls for rate reduction and simplification.

But probably not. They’re shameless.

[Update a few minutes later]

Victor Davis Hanson rightfully wonders about the implications for the “voluntary” and honor-based nature of the current tax code:

Millions of Americans don’t have either Daschle’s or Geithner’s resources, yet they pay dearly to go to accountants, honestly turn over all their records, and then pay the full amount of taxation in accordance with their understanding of the law, and the advice they receive from professional accountants.

Yet men both much richer and much more informed about the U.S. tax code not only don’t do that, but feel no compunction to rectify mistakes unless they cause embarrassment enough to thwart their careers. Two subtexts as well: there must be many more Daschles and Geithners floating around Washington who don’t show up on the radar unless they want a top political appointment; and, two, the old liberal creed that taxes are good and patriotic and are avoided by greedy, selfish conservative elites seems shattered by these examples.

Any more of these stories and we will be on very dangerous ground, since the message is a terrible one to the American people: You pay your full amount, but our elites not only do not, but won’t unless they get caught.

This is all about as good an argument for a flat tax as one can imagine.

Or getting rid of income tax entirely. Starting with corporate.

[Update a few minutes later]

Driving Mr. Daschle:

“The rumors are… drumroll please… true! You are now driving the next United States Secretary of Heath and Human Services!”

“Congratulations, Mr. Daschle. That sure sounds like quite an accomplishment.”

“Yes sirree bob. Quite an irony, isn’t it, Ernest?”

“How’s that, sir?”

“I mean, well, me, having an African-American as a boss. Well, not that it’s like I’m really your boss or anything. Us being good friends and all.”

“I guess not, sir.”

“But there’s this craziest thing, though.”

“What’s that?”

“Some stupid little tax complication.”

“It’s always something, I guess.”

“You said it, Ernest. Seems that there’s this rule that says that I have to claim these fun little drives of ours as income. Isn’t that crazy?”

“Yes sir, I guess so. That’s why I let H&R Block do mine.”

“I mean, we’re just out here havin’ a good time, Edward and Tom, two buddies out seeing the sights of Washington. So I asked my accountant, how in the world can that be taxable income?”

“No idea, Mr. Daschle.”

“Exactly. Now the accountant says I might be stuck with a $100,000 bill for it.”

“whewww! That’s a lot of money, sir.”

“So, I told that accountant that Ernest can’t help it if Mr. Hindery gives him a lot of free time to goof around with his old friend Tom.”

“If you say so, sir.”

“So, Ernest, I don’t want you to worry about getting into trouble. If you get called by the IRS men to testify, just tell them the truth. About how you really work for Mr. Hindrey, and how these all little joy rides of ours are just us playing hookey.”

“Hookey, sir?”

“Exactly! I’ve already talked to Mr. Hindery about it, and he is ready to forgive you. One other thing, Edward…”

“Ernest.”

“Damn! Sorry again. Out of curiosity, does A-1 Limousine keep records? About mileage and all that?”

“Yes sir. Very complete.”

“Passengers, and time and such?”

“Yes sir, it’s all in the computer. It’s how we get paid.”

“Shit.”

I’m sure it was all perfectly innocent. A mistake any tax/big-government hypocrite lobbyist could make.

[One more update]

It’s hard to see these numbers holding up if this continues. Frankly, I’d rather the sheep were less compliant with this extortion plan, so I actually hope to see the hypocrisy continue. I think that we need a little, or a big, tax revolt, and the behavior of the grandees of the Beltway seems almost calculated to bring one on.

12 thoughts on “The Case For No Stimulus”

  1. It was just announced that Daschle has withdrawn his nomination, the second Obama nominee today to withdraw due to tax problems. Leona Hemsley was reamed for reportedly saying “Taxes are for little people.” Daschle and company probably never said that but they act like they believe it.

    Since Democrats said that paying taxes is patriotic, can we now question their patriotism (at least those to whom it applies)?

  2. We definitely need to audit all public officials every year, and have those results publicly filed. After all, what’s good for public companies under the SEC must be doubly true for public officials.

    A flat tax on top of that would just be gravy.

  3. It’s hard to see these numbers holding up if this continues.

    I think those numbers will hold. They’re based on fundamental beliefs about the role of government and civic duty. It’s the public’s opinion of Obama/Democrats that will not hold up.

  4. The guy who does This American Life on NPR, forget the name, did a nice piece the other day on the competing theories of economic recovery. He had a Keynesian Democrat economist on, full of Stimulus Now! enthusiasm, and Tyler Cowen, who, of course, is anything but a fan of stimuli. A clear explanation, with no editorializing. What news is supposed to be, purely informative. How he keeps his job at NPR I don’t know.

    What I thought was interesting was that he added in the theory that a recession should not be “cured” because a recession is a cure. It’s the cure for overpriced assets, and for an inefficient distribution of labor (e.g. too many mortgage brokers and real estate agents, not enough plumbers and car mechanics). The recession is the correction, with the prices of overvalued assets dropping back down to where they should be, and people in fields with too many employees losing their jobs.

    From this interesting point of view, one should no more stop the process of recession than one should stop the strong immune response that one’s body mounts to infection, including fever, massive white blood cell count, et cetera. The best course would actually be to accelerate the necessary changes, e.g. have assets deflate faster and have folks who need to change jobs lose their original job earlier, so that the process of regrowth and healing can begin sooner.

  5. During the White House press conference regarding Daschle’s withdrawal:

    Robert Gibbs told reporters Tuesday, “The bar that we set is the highest that any administration in the country has ever set.”

    Any high jumper/pole vaulter can set the bar high. The question is whether or not you are capable of clearing it. Withdrawing Daschle’s name doesn’t explain ignoring Geithner.

    For point of comparison, Linda Chavez was withdrawn as Sec Labor, because she gave money to an illegal immigrant that was in her home after being domestically abused. Although the FBI cleared her, she still didn’t become Sec Labor. It would be nice if Obama’s Administration at least tried clearing that bar first.

  6. Robert Gibbs told reporters Tuesday, “The bar that we set is the highest that any administration in the country has ever set.”

    Too bad their nominees keep trying to Limbo under it instead of jumping over it.

  7. Robert Gibbs told reporters Tuesday, “The bar that we set is the highest that any administration in the country has ever set.”

    Really? So Washington, Jefferson, Lincoln — none of those poor schmos and their loser Cabinets met the High Standards(TM) of the O!bama Administration? Thomas Jefferson as Secretary of State for Washington was a doofus compared to Hilary Clinton? Alexander Hamilton as Treasury Secretary was a sleazebag compared to Geithner?

    These people are either crudely cynical, stunningly ignorant, or appallingly egoistical. I’m not sure which, yet.

  8. These people are either crudely cynical, stunningly ignorant, or appallingly egoistical. I’m not sure which, yet.

    Who says it has to be an either-or proposition? “All of the above” is as likely as any of the alternatives.

  9. Millions of Americans don’t have either Daschle’s or Geithner’s resources, yet they pay dearly to go to accountants, honestly turn over all their records, and then pay the full amount of taxation in accordance with their understanding of the law, and the advice they receive from professional accountants.

    Otherwise known in Washington DC circles as chumps.

  10. From this interesting point of view, one should no more stop the process of recession than one should stop the strong immune response that one’s body mounts to infection, including fever, massive white blood cell count, et cetera. The best course would actually be to accelerate the necessary changes, e.g. have assets deflate faster and have folks who need to change jobs lose their original job earlier, so that the process of regrowth and healing can begin sooner.

    I think you hit the nail on the head, through the wrong piece of wood. The *point* is that a more free-market based approach deflates assets and cut jobs faster and earlier – before they become macroeconomic problems. In fact, it deflates assets and cuts jobs continually, as they become overvalued or needless. Using your analogy, an infection is a very sure sign that the body’s immune response has failed – if the routine cleanup and barrier defenses had done their job in the first place, no infection would have occurred. A few cells would die, but the body would go on unaffected. An economy under social and corporate welfare is like a child raised in an overly clean, hermetically sealed house. You only delay, and worsen, the inevitable – possibly with fatal consequences.

    Case in point is Detroit. The Big 3 have been shielded from market realities by favorable protectionist legislation for decades. Now that a particularly virile economic influenza is going around, they have no response. What is lost in all this is opportunity costs. Technicians and engineers whose companies close down don’t stop building things for long, and idle capital like factories and assembly line equipment does not stay idle for long. We tend to forget that talent is not a plug-and-play commodity.

  11. The article in the NY Times that Cowen points to makes the same tired arguments: too much money, not enough price on risk, too little regulation.

    His second point is valid. Grading MBS’s cash-good was an unbelievable abrogation of due diligence by securities rating agencies.

    His third point is preposterous, but I won’t go into it because everyone else has and it’s an issue of religion at this point.

    But his first point is the most irresponsible one, and it is one that I keep hearing over and over again with no attempt whatsoever at explanation. Cowen claims that the huge money bubble of the 1990s and early 2000s was the result of linking savings and investment vehicles. This is idiotic. I suppose all those old savings accounts weren’t invested by the banks in the past? So he says that risk was suddenly underpriced, but that’s also not realistic. Even if dumb saps like me, wielding our eTrade power, pumped up securities, that doesn’t change the fundamental calculus of the usual institutions. Low-risk in that case simply becomes the value investment. In fact, there WAS too much money in the system to invest at face value, and the game became speculating which asset would go down the least. It was pumped there by a Fed salivating over low interest rates, a president bent on home ownership, and a congress hooked on budget deficits. The dollar bubble came first folks. Never forget that.

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